The Other Side Side of the Coin
Photo by Virgil Cayasa on Unsplash
Article originally posted here by Science Direct
by Brett Smith
While research highlights the importance of an entrepreneurial identity in acquiring resources, our exploratory study advances research on identity, entrepreneurship, and resource exchange by highlighting the other side of the coin: the role of an investor identity. Based on our qualitative study, we find that investors engage in sensegiving through organizational identity claims and actions to (re)define their organizational reality about who they are and what they do. They engage in investor identity work to adapt to the strategic changes in a market category and sustain resource provision. Our findings have theoretical implications for identity and entrepreneurship research including the construct of investor identity and its sensegiving function, its dynamism and role in strategic changes, and its role in subjective assessment of investor decision-making.
Acquiring financial resources is one of the most important and challenging processes for entrepreneurial ventures (e.g., Ko and McKelvie, 2018). It is important because entrepreneurial ventures need resources to exploit identified opportunities (Shane, 2003); yet, it is challenging because new ventures suffer from a liability of newness, whereby their uncertainty and lack of operating history make it difficult for investors to evaluate them (Stinchcombe, 1965; Zimmerman and Zeitz, 2002). For entrepreneurial ventures, one way to acquire resources amidst this uncertainty is through their entrepreneurial identities, “the constellation of claims … that gives meaning to the questions of ‘who we are’ and ‘what we do’” (Navis and Glynn, 2011: 480). Using identity claims, entrepreneurial ventures attempt to influence investor perceptions about their organization and “these claims provide an important starting point” for investor evaluations (Pontikes, 2012: 111). Extant research offers rich insights into how entrepreneurial ventures use their identities to acquire resources from investors (e.g., Martens et al., 2007; Navis and Glynn, 2010, 2011; Santos and Eisenhardt, 2009; Younger and Fisher, 2020).
While the attention on entrepreneurial identities has been useful, it has also resulted in an incomplete picture of the resource exchange process, as it disproportionately focuses on one side of the coin - the identities of entrepreneurial organizations as a means to acquire resources. This is unfortunate because resource exchange is a dyadic process, including both resource acquisition by entrepreneurs and resource provision by investors (e.g., Huang and Knight, 2017). A nascent stream of research suggests the identities of investors play a key role in resource exchange (e.g., Fisher, 2012; Pontikes, 2012). This focus on investor identity is important because it can extend our knowledge about resource provision and investor decision-making (Navis and Glynn, 2011). However, we know little about the role of identities during resource exchange from the other side of the coin – the investor perspective.
To address this gap, we seek to make three contributions. First, we augment the literature on entrepreneurial identity in resource acquisition by focusing on investor identity during resource provision. Second, we show how the dynamic nature of investor identity work can lead to and enable strategic changes by investors. Finally, we extend research on investor decision-making, complementing work on objective decision-making criteria with research focused on identity and subjective criteria.